Ford Motor Company has been in talks with China’s Contemporary Amperex Technology Co. Limited (CATL) to supply batteries to the automotive giant’s electric-vehicle manufacturing plant in Ontario, according to two sources familiar with the issue.

The discussions, which have not previously been reported, come amid a flurry of deals between automakers and battery suppliers as part of an industry-wide shift toward EVs. CATL is the world’s largest manufacturer of power batteries and a central piece of the Chinese government’s ambitions to expand the country’s already dominant position in the electric-vehicle space.

One of the sources, whom The Logic has granted anonymity because they were not authorized to speak publicly on the issue, said Canadian officials have raised concerns about the prospect of China supplying batteries for Canadian electric vehicles, given how the Chinese government uses its commanding market positions to advance its geopolitical aims. The person said U.S. officials are also aware of Ford and CATL’s discussions, and that there were concerns among Canadian government officials that they might object to such a partnership. 

CATL is not likely to build a facility in Ontario, and would instead source its batteries externally and supply them to Ford’s Oakville, Ont., plant, the person said. Both sources said a deal did not appear imminent, particularly amid concerns over President Joe Biden’s Build Back Better legislation, which includes a tax credit for American-made EVs. 

A Ford-CATL deal wouldn’t likely spur national-security concerns in Canada, one person said, unless the Chinese battery maker’s operations were vertically integrated with upstream lithium mines or other critical minerals. CATL had sought to purchase Vancouver-based lithium miner Millennial Lithium last year, but was eventually outbid (the company’s operations are focused in Argentina).  

In 2020, Ford announced plans to shift its Oakville facility, where it currently makes the Ford Edge and Lincoln Nautilus, to produce EVs.

Neither Ford nor CATL responded to The Logic’s requests for comment. Spokespeople for the federal and Ontario governments did not confirm whether they are aware of discussions.

Ford’s China division announced last year it would start using CATL batteries in domestically manufactured electric vehicles. The battery giant already supplies Tesla, BMW, General Motors and other major automakers. Ford has entered partnerships with various multinational battery suppliers including SK Innovation and Panasonic.

Adding to uncertainty over the partnership, the U.S. Build Back Better bill continues to loom large over Canada’s nascent EV industry. It includes a tax credit of up to US$12,500 for electric vehicles made at American unionized factories, a move that has prompted intense blowback from Canadian industry groups and government officials. 

Finance Minister Chrystia Freeland has said the credit is the equivalent of a 34 per cent tariff on Canadian-made vehicles, and has threatened to impose retaliatory levies on American goods if the White House adopts the bill. 

Several people in the EV sector told The Logic Biden’s proposed legislation has put a chill on major potential investments like battery facilities and other parts manufacturers, causing multinational companies to delay final investment decisions. 

“As companies start to consider major investments in battery operations, not having a clear path for the future obviously has an impact on decisions people are making,” said Scott Doherty, executive assistant to Unifor’s national president. “The fact that this is still hanging out there, I would say, is deterring the quickness of some of the investments being planned around batteries.” 

In December 2021, The Logic first reported that the South Korean battery giant LG Energy Solution was in talks to build a $2-billion battery facility in Ontario. One person familiar with those discussions said LG had exchanged term sheets with Ontario to build the plant, but that talks have been delayed as companies monitor progress of the Build Back Better bill. 

The legislation, which has yet to pass the senate, has been met with heavy resistance, particularly from West Virginia Senator Joe Manchin, who has repeatedly said it’s “dead.” Some Democrats are now pushing for the party to table a leaner version of the bill in an effort to expedite its passage. 

Observers in Canada have questioned how the U.S. could enforce a tax credit for American-made electric vehicles, given its highly integrated supply chain with Canada and elsewhere. Unifor and others are calling for an exemption for Canadian electric vehicles and parts, given the interdependence of the two countries. 

Deep integration in the EV supply chain goes well beyond the U.S. and Canada. China’s CATL and BYD now produce a third of global battery supply, and major Western automakers like Tesla are increasingly manufacturing their vehicles in Chinese factories. 

That will complicate U.S. efforts to nudge China out of its supply chain of strategic industries like pharmaceuticals, lithium batteries and semiconductors, a policy that has given weight to concerns over a growing U.S.-China technology divide.

America’s automotive sector is among the industries most exposed to a potential U.S.-China split, second only to its consumer-electronics sector, according to an analysis by Boston Consulting Group. China has also been a major growth market for U.S. car makers, accounting for 14 per cent (US$80 billion) of global revenues in 2019, BCG analysts said.

“While the EU, South Korea and other nations could supply some of these industries’ needs, they lack the capacity to fully replace China,” BCG said.